APPLICANT'S ABSTRACT: Current health policy and health care reform efforts emphasize managed care as a primary mechanism for improving the delivery and cost-effectiveness of alcohol/other drug abuse (AOD) treatment. Few empirical data are available, however, on the performance of managed care in this area. Not much is known about the cost effectiveness of AOD treatment in managed care settings. The main purpose of this study is to determine whether AOD treatment affects subsequent health care utilization and costs in a large managed care setting. The study setting is Kaiser Permanente, Northwest Division (KPNW), a group model HMO, that serves over 400,000 members. Unlike many managed care plans, KPNW provides comprehensive AOD treatment services with minimal financial barriers to care. The specific aims: 1) assess changes in patterns of health services utilization and costs following AOD treatment and to determine whether greater cost reductions are associated with amount of treatment and better treatment outcomes; and 2) to determine whether trends in health services utilization and costs differ between persons assessed and recommended for AOD treatment and a comparison group not known to have AOD problems. The major study hypothesis is that amount of AOD treatment will be inversely related to subsequent use of health care services and costs. The study overcomes many of the shortcomings of past research. It includes a large number of study subjects-persons diagnosed with an AOD problem and recommended for treatment, but with considerable variation in amount of treatment received--a comparison group that is demographically similar but not known to have alcohol and drug problems, and up to three-year pre- and three-year post-assessment measures of utilization and costs. Finally, the study controls for AOD diagnosis, problem severity, medical conditions, and prior medical utilization, and includes measures of AOD outcomes following treatment.